Impasse Broken, but Stability at Risk

Since taking the throne in 2006, Emir Sabah’s staunch defense of royal prerogatives has contributed to a deepening division between the executive and legislative branches, in the process shrinking the potential for reaching the compromises required to secure approval of reform legislation that in some cases has been gathering dust for years.  However, a breakthrough of sorts was made at yet another early election held on December 1, thanks to an opposition boycott that resulted in a large pro-government majority in the Parliament.

The self-imposed exclusion of nearly all government opponents from the Parliament presumably will facilitate the process of approving stalled reforms, resulting in a more attractive climate for foreign investment.  However, the opposition has vowed to use all non-violent means at its disposal to force the annulment of the elections, a warning that points to a significant risk of disruptive political protests that could escalate rapidly if the government responds in a heavy-handed manner.

The composition of the new Parliament is not an unmitigated blessing for the emir.  On the one hand, popular perceptions of the Parliament as a rubber stamp that lacks popular legitimacy could provide the opposition with a useful touchstone for building support for its democratization agenda.  On the other hand, the many first-time lawmakers in the current Parliament are keen to make a lasting impression on their constituents, a goal that is frequently at odds with the interests of Emir Sabah.  The recent approval of a bailout for indebted households, an expensive and controversial program vehemently opposed by Finance Minister Mustafa Shamali, is a case in point.

That said, it is probably safe to say that several pieces of legislation that are crucial to the success of the $107 billion development plan unveiled by the government three years ago stand a fairly good chance of being approved.  What that means for a controversial proposal to open the country’s northern oil fields to foreign investors remains to be seen, but the government is pressing ahead with bidding for major downstream investments, including a clean-fuels project and the construction of a new refinery in the southern region of Al-Nour for the Kuwait National Petroleum Company.  The projects are valued at a total of $30 billion, involving a total of eight contracts.

Forecast Summary

SUMMARY OF 18-MONTH FORECAST
REGIMES & PROBABILITIES Al-Sabah Family 60% Limited Monarchy 35% Fundamentalists 5%
RISK FACTORS CURRENT  
Turmoil Low SLIGHTLY MORE MORE MUCH MORE
Investment
  Equity High Same Same MORE
Operations Moderate Same Same MORE
Taxation High SLIGHTLY LESS Same Same
Repatriation Low Same Same MORE
Exchange Low Same Same MORE
Trade
Tariffs Moderate SLIGHTLY LESS SLIGHTLY LESS MORE
Other Barriers High SLIGHTLY LESS SLIGHTLY MORE MORE
Payment Delays Low Same SLIGHTLY MORE MUCH MORE
Economic Policy
Expansion Low SLIGHTLY MORE MORE MORE
Labor Costs High Same Same Same
Foreign Debt Low Same SLIGHTLY MORE MORE
SUMMARY OF FIVE-YEAR FORECAST
REGIMES & PROBABILITIES Al-Sabah Family 55% Limited Monarchy 40% Fundamentalists 5%
RISK FACTORS BASE  
Turmoil Low Same SLIGHTLY MORE MUCH MORE
Restrictions
Investment Moderate Same SLIGHTLY MORE MORE
Trade Moderate SLIGHTLY LESS SLIGHTLY MORE MORE
Economic Problems
Domestic Moderate SLIGHTLY LESS Same MORE
International Moderate SLIGHTLY LESS Same MORE
* When present, indicates forecast of a new regime

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